BLBG:Treasuries Rise Before Bernanke On Slower Growth Bets
Treasuries rose, pushing 10-year yields toward a record low, before Federal Reserve Chairman Ben S. Bernanke starts his second day of testimony to Congress amid speculation the U.S. economic recovery is faltering.
Longer-maturity bonds led the advance before data tomorrow that economists said will show applications for jobless benefits increased last week. Bernanke said yesterday the reduction in the unemployment rate is “frustratingly slow.” German and U.K. yields fell to records today as concern global growth is slowing and Europe’s debt crisis is deepening boosted demand for the safest fixed-income assets.
“Bernanke probably won’t give anything away today and the outlook remains so uncertain that there will still be buyers of Treasuries,” said Eric Wand, a fixed-income strategist at Lloyds Banking Group Plc in London. “All core markets are getting support from the uncertainty over the global outlook and the situation in Europe, which still hasn’t been cleared up,” he said, referring to highly-rated government bonds.
The benchmark 10-year yield declined two basis points, or 0.02 percentage point, to 1.49 percent at 6:53 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.75 percent note due in May 2022 rose 7/32, or $2.19 per $1,000 face amount, to 102 13/32.
U.S. government securities are in demand as European governments struggle to find ways to pay their debts, the U.S. economy slows and Chinese output weakens. A report showed yesterday that overseas investors increased holdings of Treasuries in May before the 10-year yield fell to a record 1.4387 percent on June 1.
Overseas Investors
The 30-year yield also fell three basis points today to 2.58 percent, after dropping to a record 2.51 percent on June 1.
Bernanke will appear before the House Financial Services Committee today in Washington. The Fed will also publish its Beige Book assessment of U.S. economic conditions.
A rejection of Europe’s permanent bailout fund by the German Constitutional Court would mean that the facility had failed in its current form and a key element in the fight against the crisis would be missing, European Central Bank Executive Board member Joerg Asmussen said, according to Germany’s Stern magazine, which cited an interview.
“Germany still has to approve Europe’s main rescue fund and this is contributing to uncertainty,” said Michael Markovic, a senior fixed-income strategist at Credit Suisse Group AG in Zurich. “The growth outlook is worrying investors and weighing on Treasury yields.”
Inflation Protection
Germany’s five-year note yield fell as much as two basis points to a record 0.268 percent. The rate on similar-maturity U.K. debt dropped as low as 0.489 percent.
Treasuries returned 2.8 percent in the three months ended yesterday, according to Bank of America Merrill Lynch data. The MSCI All-Country World Index (MXWD) of stocks handed investors a 4 percent loss including reinvested dividends, data compiled by Bloomberg show.
The difference between yields on 10-year notes and similar- maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, was 2.09 percentage points. The average over the past decade is 2.15 percentage points.
The Treasury is scheduled to sell $15 billion of 10-year TIPS tomorrow.
Confidence Rises
Applications for jobless benefits increased to 365,000 in the week ended July 14 from 350,000 a week earlier, Labor Department figures will show tomorrow, economists forecast.
Housing starts rose 5.2 percent last month to a 745,000 annual pace, the strongest since October 2008, according to the median estimate among economists surveyed by Bloomberg News before the Commerce Department report today. Building permits, a proxy for future construction, dropped 2.4 percent to a 765,000 rate, a separate survey showed.
Net foreign purchases of Treasuries increased 1 percent to a record $5.264 trillion in May, Treasury data yesterday showed. China, the biggest foreign creditor, raised holdings to $1.1696 trillion, the most in six months.
A deepening debt crisis in Europe helped drive investor appetite for the relative safety of Treasuries, with the U.K.’s investment surging 19 percent, the most in nine months, to $161.1 billion. France’s increased 21 percent.
Fed Holdings
“European investors are becoming like those in Asia, always trying to buy Treasuries,” said Will Tseng, who invests in U.S. debt in Taipei for Shin Kong Life Insurance Co., which has the equivalent of $52.8 billion in assets. “Yields will go down. I prefer to be long instead of being empty-handed.” A long position is a bet an asset will increase in value.
U.S. 10-year yields will increase to 1.93 percent by year- end, according to a Bloomberg survey of economists with the most recent projections given the heaviest weightings.
The Fed remains the largest holder of U.S. debt with $1.66 trillion. The central bank said on June 20 it would increase to $667 billion from $400 billion its program of extending the average maturity of the Treasuries on its balance sheet by selling short-term securities and buying an equal amount of longer-maturity debt.
The Fed is scheduled to buy as much as $5.5 billion of Treasuries maturing from August 2020 to May 2022 today as part of the plan, according to the Fed Bank of New York website.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
